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Old 03-07-2005, 10:56 PM
titantoo titantoo is offline
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Default NYTimes Op-Ed :The Debt-Peonage Society

March 8, 2005

OP-ED COLUMNIST The Debt-Peonage Society


Today the Senate is expected to vote to limit debate on a bill that toughens the existing bankruptcy law, probably ensuring the bill's passage. A solid bloc of Republican senators, assisted by some Democrats, has already voted down a series of amendments that would either have closed loopholes for the rich or provided protection for some poor and middle-class families.

The bankruptcy bill was written by and for credit card companies, and the industry's political muscle is the reason it seems unstoppable. But the bill also fits into the broader context of what Jacob Hacker, a political scientist at Yale, calls "risk privatization": a steady erosion of the protection the government provides against personal misfortune, even as ordinary families face ever-growing economic insecurity.

The bill would make it much harder for families in distress to write off their debts and make a fresh start. Instead, many debtors would find themselves on an endless treadmill of payments.

The credit card companies say this is needed because people have been abusing the bankruptcy law, borrowing irresponsibly and walking away from debts. The facts say otherwise.

A vast majority of personal bankruptcies in the United States are the result of severe misfortune. One recent study found that more than half of bankruptcies are the result of medical emergencies. The rest are overwhelmingly the result either of job loss or of divorce.

To the extent that there is significant abuse of the system, it's concentrated among the wealthy - including corporate executives found guilty of misleading investors - who can exploit loopholes in the law to protect their wealth, no matter how ill-gotten.

One increasingly popular loophole is the creation of an "asset protection trust," which is worth doing only for the wealthy. Senator Charles Schumer introduced an amendment that would have limited the exemption on such trusts, but apparently it's O.K. to game the system if you're rich: 54 Republicans and 2 Democrats voted against the Schumer amendment.

Other amendments were aimed at protecting families and individuals who have clearly been forced into bankruptcy by events, or who would face extreme hardship in repaying debts. Ted Kennedy introduced an exemption for cases of medical bankruptcy. Russ Feingold introduced an amendment protecting the homes of the elderly. Dick Durbin asked for protection for armed services members and veterans. All were rejected.

None of this should come as a surprise: it's all part of the pattern.

As Mr. Hacker and others have documented, over the past three decades the lives of ordinary Americans have become steadily less secure, and their chances of plunging from the middle class into acute poverty ever larger. Job stability has declined; spells of unemployment, when they happen, last longer; fewer workers receive health insurance from their employers; fewer workers have guaranteed pensions.

Some of these changes are the result of a changing economy. But the underlying economic trends have been reinforced by an ideologically driven effort to strip away the protections the government used to provide. For example, long-term unemployment has become much more common, but unemployment benefits expire sooner. Health insurance coverage is declining, but new initiatives like health savings accounts (introduced in the 2003 Medicare bill), rather than discouraging that trend, further undermine the incentives of employers to provide coverage.

Above all, of course, at a time when ever-fewer workers can count on pensions from their employers, the current administration wants to phase out Social Security.

The bankruptcy bill fits right into this picture. When everything else goes wrong, Americans can still get a measure of relief by filing for bankruptcy - and rising insecurity means that they are forced to do this more often than in the past. But Congress is now poised to make bankruptcy law harsher, too.

Warren Buffett recently made headlines by saying America is more likely to turn into a "sharecroppers' society" than an "ownership society." But I think the right term is a "debt peonage" society - after the system, prevalent in the post-Civil War South, in which debtors were forced to work for their creditors. The bankruptcy bill won't get us back to those bad old days all by itself, but it's a significant step in that direction.

And any senator who votes for the bill should be ashamed.

E-mail: krugman@nytimes.com
"Human nature will only find itself when it finally realizes that to be human it has to cease to be beastly or brutal." (Mohandas Gandhi, In Search of the Supreme)
"I learned that familiar paths traced in the dusk of summer evenings may lead as well to prisons as to innocent, untroubled sleep." (Albert Camus, The Stranger)
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Old 03-08-2005, 03:35 AM
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Default NYTimes Editorial:Standing Up to the Credit Card Industry

March 8, 2005

EDITORIAL Standing Up to the Credit Card Industry

After crudely rejecting proposals to protect elderly, sick and low-income Americans, the Senate is ready to approve a regressive overhaul of the personal bankruptcy law that buys into the banking and credit card industries' scheme to further squeeze the consumers caught in spiraling debt. The Republican leadership, fiercely defeating attempts at balance for the more debt-stricken consumers, is pushing toward final votes this week.

The last stand for opponents will probably be a proposed amendment to prevent anti-abortion zealots and others convicted of violent protests from declaring personal bankruptcy as a ploy to avoid paying court-ordered fines. The senators have already rejected many worthy amendments in their effort to move the bill untouched to the House, where Republicans are no less eager to do the credit industry's bidding. But we hope that this one, sponsored by Senator Charles Schumer of New York, stirs some controversy.

The weeklong debate has proceeded beyond the notice of most Americans, yet the overhaul would produce great harm, depriving more consumers of current bankruptcy protections. Judges could order stiffer repayment plans than under current laws, which already allow the credit card companies to sandbag defaulters with compounded penalty fees and interest mounting higher than the original debt.

Senator Edward Kennedy, Democrat of Massachusetts, pointed out that fully a third of personal bankruptcies are suffered by families who are already impoverished under federal standards. His proposal to raise the minimum wage, frozen for more than seven years at $5.15, was defeated. The debate was rendered ludicrous by a fake counterproposal from Senator Rick Santorum, Republican of Pennsylvania. It would gut existing overtime and wage protections for millions of workers in the name of helping them. It was defeated, but should have been laughed off the floor.

The majority's cynicism in pushing the bill has been as deep as the pockets of the high-powered lobbyists behind it. Even a proposal to exempt soldiers fighting in Iraq from the tougher bankruptcy rules was defeated, but the egregious "millionaire's loophole" still stands, allowing wealthy Americans in bankruptcy to shelter huge assets in safe-haven states.

The Schumer amendment is just the poison pill this bill deserves. And opponents' threats of a final filibuster would be justified in rebuffing a credit card industry that dares to cry foul after exploiting consumers with nonstop invitations to more cards and deeper debt.
"Human nature will only find itself when it finally realizes that to be human it has to cease to be beastly or brutal." (Mohandas Gandhi, In Search of the Supreme)
"I learned that familiar paths traced in the dusk of summer evenings may lead as well to prisons as to innocent, untroubled sleep." (Albert Camus, The Stranger)
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Old 03-09-2005, 07:27 AM
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Default NYTimes:Bankruptcy Bill Set for Passage; Victory for Bush

March 9, 2005

Bankruptcy Bill Set for Passage; Victory for Bush


WASHINGTON, March 8 - The Senate assured final passage of the first major overhaul of the nation's bankruptcy laws in 27 years on Tuesday, when it took two votes that cleared the remaining political obstacles to a measure that the nation's credit and retail industries have sought for years.

The bill would disqualify many families from taking advantage of the more generous provisions of the current bankruptcy code that permit them to extinguish their debts for a "fresh start." It would also impose significant new costs on those seeking bankruptcy protection and give lenders and businesses new legal tools for recovering debts.

The Senate on Tuesday first defeated an amendment that would have prevented violent protesters at abortion clinics from using the bankruptcy laws to shield themselves from judgments awarded in civil lawsuits. That amendment, which lost by a vote of 53 to 46, had threatened to derail the legislation. The senators then voted 69 to 31 to limit debate and cut off any effort to kill the legislation by filibuster.

Final passage of the measure is now an inevitable formality.

House leaders have said they will quickly approve the legislation once the Senate completes work on it as early as this week. President Bush has said he intends to sign it. His predecessor, President Bill Clinton, killed the measure in his final days in office in 2000 after it had been passed by Congress by declining to sign it at the end of the legislative session, issuing a so-called pocket veto.

The sponsors of the legislation say that it will have the effect of lowering the costs of goods and services for all consumers by making it easier for companies and issuers of credit to collect unpaid debts rather than passing those costs on to everyone else. In the last 30 years, bankruptcy filings have steadily increased, rising eightfold since Congress last rewrote the bankruptcy laws.

But critics said the measure was a thinly disguised gift to banks and credit card companies, which, they contend, are largely responsible for the high rate of bankruptcies because they heavily promote credit cards and loans that often come with large and largely unseen fees for late payments. They said that the measure would impose new obstacles on many middle-income families seeking desperately needed protection from creditors, and that it would take far longer for those families to start over after suffering serious illnesses, unemployment and other calamities.

The votes on Tuesday were the second legislative victory in recent weeks both for Mr. Bush and the Senate majority leader, Bill Frist, himself a possible presidential contender in 2008. Mr. Frist nimbly moved both the bankruptcy bill and another bill last month making it more difficult to bring class-action lawsuits through the Senate.

In both cases, he unified the Republicans to beat back every effort by the Democrats to water down or delay the measures. In both cases, he also reached a deal with House leaders in which the Senate blocked any significant changes to the measure in exchange for a commitment from the House that it would adopt unaltered what the Senate approved.

The White House applauded the votes on Tuesday.

"The administration supports the passage of bankruptcy reform because ultimately this will lead to more accessibility to credit for more Americans, particularly lower-income workers," said Trent D. Duffy, a deputy White House spokesman. "The fact that the Senate was able to set aside those issues and move toward passage shows it's another bipartisan accomplishment. Coupled with class actions, it shows we're off to a good start."

The sponsors of the bankruptcy legislation say it is a badly needed measure to curb a growing number of abusive bankruptcy filings by individuals who ought to be able to meet their obligations. Those cases, supporters of the measure say, have added hundreds of dollars in annual costs to other consumers who wind up having to pick up the unpaid debt.

"We are a compassionate nation but we should not be fools," said Senator Orrin G. Hatch, a Utah Republican who has fought for the measure for eight years. "We want to give our neighbors who get in over their heads a chance to get out of their financial troubles. But for some it is a way to avoid personal responsibility. There is something inherently unfair about denying full restitution to creditors."

Supporters of the new law point to the rise of bankruptcy filings, from 200,000 in 1978 to 1.6 million last year, as evidence of abuses.

But critics of the measure say that the rise in such filings is not evidence of unfair filings. Rather, they say, it is symptomatic of broader economic problems - the growing distress in families plagued by high health care and education costs. A recent study by bankruptcy and medical experts at Harvard University found that more than half of the 1,771 personal bankruptcy filers in five federal courts cited medical bills as a primary reason they filed.

The critics - including consumer groups, Democrats and more than 100 bankruptcy law professors - say that the legislation's supporters have significantly exaggerated the problem with the current bankruptcy laws. They say the legislation will do far more damage than good by hitting middle-income families, women and the elderly who have used bankruptcy protection in growing numbers to protect themselves.

"This bankruptcy bill is mean-spirited and unfair," said Senator Edward M. Kennedy, Democrat of Massachusetts. "In anything like its present form, it should and will be an embarrassment to anyone who votes for it. It's a bonanza for the credit card companies, which made $30 billion in profits last year, and a nightmare for the poorest of the poor and the weakest of the weak."

In a letter to Congress two weeks ago, 104 bankruptcy law professors predicted that "the deepest hardship" would "be felt in the heartland," where the filing rates are highest - Utah, Tennessee, Georgia, Nevada, Indiana, Alabama, Arkansas, Ohio, Mississippi and Idaho.

Critics also said the measure fails to do anything to curb abusive bankruptcy practices by wealthy families, who can create special trusts to shelter their assets, and by corrupt companies like Enron and WorldCom, which were able to find favorable bankruptcy courts and deprive many of their employees and retired employees of benefits. The Senate defeated a series of amendments proposed by Democrats that sought to address those issues.

"The bill has a real bias," said Senator Charles E. Schumer, Democrat of New York, whose proposal to close a loophole that permits wealthy people to shelter assets through a special trust was defeated last week. "It deals with abuses in bankruptcy by one group but not with another group."

The lobbying money for the legislation, which has come close to passage several times in the eight years since it was introduced, has been lopsided.

The main lobbying forces for the bill - a coalition that included Visa, MasterCard, the American Bankers Association, MBNA America, Capital One, Citicorp, the Ford Motor Credit Company and the General Motors Acceptance Corporation - spent more than $40 million in political fund-raising efforts and many millions more on lobbying efforts since 1989, according to the Center for Responsive Politics, a nonpartisan organization that studies the role of money in the political process. By definition, the critics of the legislation had limited lobbying resources.

The foundation of the legislation is a provision that would limit access by individuals to Chapter 7 of the bankruptcy code. It enables individuals to sharply limit payments on their obligations and get a "fresh start."

The bill would instead impose a means test that would prompt many people to file for bankruptcy protection under Chapter 13, which requires a repayment plan. The means test would not be applied to debtors who earn less than the median income in their state. Those who earn more than that and can pay at least $6,000 over five years would have to seek protection under Chapter 13.

The median income for a family of four in 2003 was $65,093, ranging from $45,867 in New Mexico to $82,561 in Massachusetts, according to the United States Census Bureau.

The bill would also increase the costs of bankruptcy by increasing the amount of paperwork filed and force people in bankruptcy to pay for counseling about the way they use credit. It would also make it more difficult for some people to try to shelter their assets through the purchase of expensive homes in states like Florida and Texas, which have homestead exemptions. To shelter more than $125,000 in assets, homes must have been purchased at least three and a third years before a bankruptcy filing.
"Human nature will only find itself when it finally realizes that to be human it has to cease to be beastly or brutal." (Mohandas Gandhi, In Search of the Supreme)
"I learned that familiar paths traced in the dusk of summer evenings may lead as well to prisons as to innocent, untroubled sleep." (Albert Camus, The Stranger)
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